Closing costs are fees incurred during the final stages of a real estate transaction, specifically at the closing. Closing, also known as settlement, is the pivotal moment in the real estate transaction where the legal ownership of the property is officially transferred from the seller to the buyer. Closing costs can exhibit significant variation contingent upon your location, the specific property you intend to purchase, and the loan option you opt for. Below is a comprehensive list of potential fees that could be included in the closing process. The comprehensive list encompasses potential fees that may arise during the loan process. However, it is improbable that your specific loan will encompass all the fees outlined in this list.
What are Closing Costs When Buying a Home?
Application Fee
This fee covers the cost for the lender to process your application. Before applying, ask your lender what this fee covers. It can often include a credit check for your credit score or appraisal. Not all lenders charge an application fee, which can often be negotiated.Appraisal
This is paid to the appraisal company to confirm the home's fair market value.
Attorney Fee
This pays for an attorney to review the closing documents on behalf of the buyer or the lender. This is not required in all states.
Closing Fee or Escrow Fee
This is paid to the title company, escrow company, or attorney for conducting the closing. The title company or escrow oversees the closing as an independent party in your home purchase. Some states require a real estate attorney to be present at every closing.
Courier Fee
This covers the cost of transporting documents to complete the loan transaction as quickly as possible.
Credit Report
A Tri-merge credit report is pulled to get your credit history and score. Your credit score plays a big role in determining the interest rate you’ll get on your loan.
Escrow Deposit for Property Taxes & Mortgage Insurance
Often, you are asked to put down two months of property tax and mortgage insurance payments at closing.
FHA Up-Front Mortgage Insurance Premium (UPMIP)
If you have an FHA loan, you must pay the UPMIP of 1.75% of the base loan amount. You can also roll this into the cost of the loan if you prefer.
Flood Determination or Life of Loan Coverage
This is paid to a third party to determine if the property is in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance, of course, is paid separately.
Home Inspection
You will likely get your home inspection to verify a property's condition and check for home repairs that may be needed before closing. However, this is typically paid directly to the inspector during inspection.
Home Owners Association Transfer Fees
The Seller will pay for this transfer, showing that the dues are paid current, what the dues are, and a copy of the association financial statements, minutes, and notices. The buyer should review these documents to determine if the Association has enough reserves in place to avert future special assessments check to see if there are special assessments, legal action, or any other items that might be of concern. Also included will be Association by-laws, rules and regulations, and CC & Rs.
Homeowners’ Insurance
This covers possible damages to your home. Your first year’s insurance is often paid at closing.
Lender’s Policy Title Insurance
This is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien, and it protects the lender if there is a problem with the title. Similar to the title search, but always a separate line item.
Lead-Based Paint Inspection
It covers the cost of evaluating lead-based paint risk.
Loan Discount Points:
“Points” are prepaid interest. One point is one percent of your loan amount. This lump-sum payment lowers your monthly payment for the life of your loan.
Owner’s Policy Title Insurance
This is an insurance policy that protects you in the event someone challenges your ownership of the home. It is usually optional.
Origination Fee
This covers the lender’s administrative costs. It’s usually about 1 percent of the total loan, but you can sometimes find mortgages with no origination fee.
Pest Inspection
This fee covers the cost of inspecting for termites or dry rot, which is required in some states and required for government loans. Repairs can get expensive if evidence of termites, dry rot, or other wood damage is found.
Prepaid Interest
Most lenders will ask you to prepay any interest accrued between closing and your first mortgage payment date.
Private Mortgage Insurance (PMI)
If you’re making a down payment of less than 20% of the home’s purchase price, chances are you’ll be required to pay PMI. If so, you may need to pay the first month’s PMI payment at closing.
Property Tax:
Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
Recording Fees
A fee that is charged by your local recording office, usually city or county, for the recording of public land records.
Survey Fee
This fee goes to a survey company to verify all property lines and things like shared fences. This is not required in all states.
Title Company Title Search or Exam Fee
This fee is paid to the title company for thoroughly searching the property’s records. The title company researches the deed to your new home, ensuring that no one else has a claim to the property.
Transfer Taxes
This is the tax paid when the title passes from seller to buyer.
Underwriting Fee
This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.
VA Funding Fee
If you have a VA loan, you may be required to pay a VA funding fee at closing (or you can roll this fee into the loan cost if you prefer). This is a percentage of the loan amount that the VA assesses to fund the VA home loan program; however, some borrowers are exempt from this fee. The percentage depends on your service type and your down payment amount.
Every real estate transaction is different and may have all of these fees, or just a few. This is why getting a good faith estimate from your lender is important to know exactly what you'll pay at closing.
Shelhee and David are Beverly Hills real estate experts, including Bel Air, Hollywood, and the Los Angeles Luxury Real Estate Market. For the most comprehensive real estate team in the LA metro area, contact David and Shelhee. For more information on buying or selling, contact us at any time.
